Startup Funding Club SEIS Fund

Tranche deadline: apply by 19 February 2021 for planned deployment in the current tax year

SFC Capital has informed us that for applications received before 19 February 2021, it intends to invest in a portfolio of 10-15 investee companies before tax year end (not guaranteed). You can view the companies being considered for investment in the Deal Pipeline document. 

For investors happy with the high risks of SEIS, the Startup Funding Club SEIS Fund is one of the strongest offers available, in our view. 

Originally set up as an angel syndicate in 2012, Startup Funding Club (SFC Capital) is now a leading early-stage investor. To date, it has invested in over 190 companies – 30 were added to its portfolio in 2020, with more expected before the end of the tax year. Indeed, a recent report from PitchBook Data named SFC as the most active Angel & Seed investor in Europe and the third most active in the world. 

Funds from previous years have now started to return cash to investors. A recent partial exit in March 2020 returned 11x of the investment cost to investors before tax relief. Past performance is not a guide to the future – see performance below. 

That said, most of the businesses are very early stage: they will have low or no revenue, so it’s very high risk for investors, softened somewhat by the tax relief. Investors should get exposure to high-growth innovative companies in a range of sectors, including digital technology, life sciences and consumer goods. 

For applications received before 19 February 2021, SFC intends to invest in a portfolio of 10-15 investee companies before tax year end. 

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.

Read important documents and apply

Highlights

  • SEIS offer exclusive to Wealth Club for non-advised investors
  • Europe’s most active Angel & Seed investor 
  • Evergreen fund investing in early-stage disruptors
  • Target return of £3 per £1 invested (not guaranteed)
  • Targets very young portfolio companies in a range of sectors, including digital technology, life sciences and consumer goods
  • Minimum investment £10,000 – you can apply online

The manager

Startup Funding Club (now SFC Capital, “SFC”) is as an angel investment club focused on very early-stage businesses. It identifies the opportunities for investment and provides ongoing support and expertise to the portfolio companies in which it invests. 

One notable early success, which helped SFC get where it is today, is Onfido, an AI-based identity verification business. Impressed by the management team, SFC invested before the business even had a product; indeed, Onfido was incubated at SFC’s offices. The investment was SEIS qualifying but was made prior to the SEIS fund being set up. Onfido was identified as one of the fastest-growing business in the UK in 2019 and 2020 by The Sunday Times Sage Tech Track 100. Onfido has raised capital from investors such as Softbank, Salesforce Ventures, and Microsoft. In a secondary sale in 2020, SFC’s initial investors had the option to exit their investment for a 100x return on capital, not including SEIS relief. Note that past performance is not a guide to the future. In 2020 Onfido raised a further $100 million from TPG, an early backer of Airbnb and Uber. 

In 2013, soon after investing in Onfido, SFC launched its first SEIS fund, one of the UK’s first. Since then, SFC has gone on to become a prolific seed investor. A recent report from PitchBook Data named it as the most active Angel & Seed investor in Europe and the third most active in the world, alongside names such as SOSV and 500 Startups. 

The SFC angel network is a group of over 500 active angel investors from various backgrounds, many of whom have direct experience in building and investing in a successful young company. They invest alongside SFC investors and bring additional funding and experience to the portfolio. Angel investors co-invest alongside the fund. To date, SFC has facilitated investments in over 200 early-stage companies across a broad range of sectors and won numerous industry awards for angel and seed investing. In addition to the angel network, SFC has forged ties with some of the country’s leading universities and startup accelerators to further broaden its deal flow.

The SFC team is headed up by Stephen Page, CEO. Stephen’s background is in the software industry, having founded and exited a number of software businesses. Stephen is supported by Joseph Zipfel (featured in the video) as Chief Investment Officer. Joseph’s background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 14 individuals, 12  of whom are actively involved with investment decisions.

Startup Funding Club (now SFC Capital Ltd) is the investment adviser to the fund, which is managed by Kin Capital Partners LLP. SFC Capital Ltd is an appointed representative of SFC Capital Partners Ltd.

Watch our latest video interview with chief investment officer Joseph Zipfel:

Investment strategy

The combination of world-leading universities and Fortune 500 companies, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for SMEs make the UK a great place for startups. 

The Fund aims to tap into this area of growth and invest in a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits at a significant (tax-free) multiple of the cash invested. The team targets a return of 3x, not guaranteed.

Typically, at the point of investment companies will be less than two years old, have an initial version of the product or service which may be generating early commercial traction but usually have only low or no revenue. At this point, valuations tend to be lower and the risks very high. 

SFC seeks to acquire meaningful strategic shareholdings in each company, so as to be able to influence the management of these ventures and put the right expertise, support and governance structure in place from the very beginning. This includes attending board meetings (either as observer or director), establishing the SFC Alumni Network, and establishing the SFC Partner Network.

Target return

The Startup Funding Club SEIS Fund targets a return of £3 per £1 invested after five to eight years, excluding any SEIS tax reliefs. Returns and timeframes are not guaranteed. 

Exit strategy

SFC aims to exit investee companies within five to seven years, not guaranteed. So far, it has completed one exit via a trade sale (MyFutureNow) as well as a partial exit through a secondary buyout (Cognism). In addition, SFC may also consider an IPO if appropriate. Please note, exit options and timeframes are not guaranteed and past performance is not a guide to the future.  

Portfolio

Investors in the current iteration of the fund can expect exposure to a portfolio of between 10-15 companies operating across various sectors including digital technology, life sciences and consumer goods. SFC seeks to invest subscriptions over a twelve-month period following a closing date. 

Below are portfolio company examples from previous iterations of the SEIS fund. They are outlined to give a flavour of the types of companies you might expect but may not be part of a new investor's portfolio. SEIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different. 

Novai – Startup Funding Club SEIS FundNovai

A spinout from University College London, Novai is a biotechnology company aiming to improve the detection and treatment of chronic eye diseases.

In chronic diseases such as glaucoma, indicators of the disease progression are often only detected after irreversible damage has already occurred. 

Novai’s proprietary technology (DARC) – which combines a patented biomarker with AI – allows detecting disease activity at a cellular level using only standard imaging equipment. This could help pharmaceutical companies de-risk and accelerate clinical development of glaucoma and age-related macular degeneration (AMD) treatments, providing significant cost and time savings.

DARC was developed over 10 years of research by Professor Francesca Cordeiro and received more than £4 million in funding from the Wellcome Trust and UCL. SFC led a £500,000 seed round in 2020, the funding will be used to start the commercialisation phase of the technology. Novai has already secured contracts with several large pharmaceutical companies in its first trading year. 

Cognism – Startup Funding Club SEISCognism 

Cognism is a London-based software company which uses Artificial Intelligence to help sales and business development professionals find prospects with its “Revenue AI” software. The company is one of the fastest-growing technology companies in the UK, having recently raised a $10 million investment led by US-based venture fund PeakSpan and grown its recurring revenue fourfold in 2019. In March 2020, the business raised a further $12 million from AXA Venture Partners.

SFC took part in the first funding round in 2017 through its SEIS fund and followed on in 2018 through its 2017/18 EIS Fund. At the time of SFC’s first investment, Cognism was still pre-revenue, in 2020 it announced it had reached over $10 million in annual recurring revenue. 

Both investments are currently valued at a significant multiple of the original cost, according to SFC. As part of the latest institutional funding round in March 2020, SFC was offered a partial exit opportunity as one of the company’s new institutions looked to further boost its shareholding in the business. SFC elected to sell c.20% of its initial shareholding for an 11.1x multiple on the original cost, corresponding to a net IRR of 181% - past performance is not a guide to the future. 

MyFutureNow – Startup Funsing Club SEISMyFutureNow (example of previous exit)

MyFutureNow developed technology to help investor trace and consolidate old pensions quickly and easily. 

SFC invested in the company in April 2016, recognising the technology was solving a real market need and the company was led by an experienced and credible management team. 

In August 2019, SFC exited its investment from Finovation Limited, trading as MyFutureNow (MFN), which was acquired by UK pension giant Legal & General (L&G). 

The transaction returned 3.2x the investment cost before tax relief, which corresponds to an IRR of 86%. Past performance is not a guide to the future.

VN Carbon Capture (example of previous failure)

As is to be expected with very young businesses, SEIS companies can and do fail.

One failure in the SFC previous portfolio is VN Carbon Capture (Gas) Ltd which received investment in March 2014.

The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing a cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made on the back of a promising feasibility study and funds were used to run further laboratory tests and simulations with a view to develop the research into industrial technology. Unfortunately, the research showed the technology was not economically viable and did not get commercial traction despite receiving interest from the scientific community, the press and industrial companies. The company dissolved in 2017. 

Performance

As can be expected when investing very early stage, investments can take time to mature – SFC expects investment holding periods of up to eight years. Now, around eight years from SFC's first SEIS fund, there appear to be some encouraging signs. Unrealised returns are attractive in our view and two investments from earlier funds have now achieved profitable exits, enabling the fund to start returning some capital to investors.

For instance, for investments made more than five years ago (2013/14 to 2015/16), on average for every £100 invested the fund has generated £160.31 in unrealised returns (before tax relief), and £6.53 in realised returns. Note: past performance is not a guide to the future. The chart below shows the valuation as at 31 December 2020, had you invested £100 in each tax year.

Source: SFC, as at 31 December 2020. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, initial tax relief of up to 50% could also apply. So, for the tax year 2015/16, the total return including initial tax relief would be £263.65, remember tax rules can change and tax benefits depend on circumstances.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Tax rules can change and benefits depend on circumstances.

This SEIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio, or even be prepared for all companies to fail.

In a portfolio of ten companies, one might do very well (although there are no guarantees), several could fail and the others might just tick along. 

Earlier-stage companies usually take longer to mature. Further funding rounds will be common so there is risk of dilution. Earlier-stage companies usually take longer to mature. 

Charges

A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.

Investor charges
Full initial charge 2.5%
Wealth Club initial saving
Net initial charge through Wealth Club 2.5%
Annual management charge
Administration charge
Dealing charge
Performance fee 30%
Investee company charges
Initial charge 6.5%
Annual charge 1%
All fees and charges are stated exclusive of VAT, which may be applicable. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

More detail on the charges

Timing of the offer 

The fund anticipates taking up to twelve months to fully deploy investor capital following the closing dates. However, it may take longer. 

SFC has informed us for applications received by 19 February 2021, SFC intends to fully deploy investors' capital by the end of tax year 2020/21. Although this is not guaranteed, SFC has not missed a deadline for investing subscriptions in seven years. 

Why is the timing of the deployment important?

When you invest in an SEIS fund, the fund manager will deploy your funds over time by investing in SEIS-qualifying companies. 

Once your funds are deployed, your shares are allotted. The date your shares are allotted (not the date you invested) will determine the investment date for tax purposes. 

If your shares are allotted in SEIS-qualifying companies before 5 April 2021, you should be able to choose whether to use the income tax relief against tax you owe for the 2020/21 tax year or against tax you’ve already paid for the previous one (known as “carry back”). 

Please remember, tax rules can change and benefits depend on circumstances. 

Our view

There are several reasons why SFC stands out as an SEIS fund offer, in our view. 

Its strong ties with leading universities and accelerator programmes, combined with its own angel network, give the investment team access to a strong pipeline of deals. 

As a result, in recent years, SFC has grown to become Europe’s leading startup investor (by number of investments made) and is ranked the third most active in the world. This is relevant to investors considering SEIS for two reasons. 

Firstly, the level of diversification is rare among SEIS funds and should be welcome, especially considering the fund invests at a very early stage, when risks are highest. 

Secondly, having a healthy pipeline of new deals means the fund should be able to deploy investor money in a timely manner, making tax planning easier. Indeed, SFC has not missed a deadline for investing subscriptions in seven years , but there are no guarantees.

Moreover, the structure SFC has put into place to offer support to its portfolio companies post investment adds weight to the offer, in our view. 

For experienced investors keen to get exposure to the bright new businesses of tomorrow, who are happy with the risks of SEIS investment, we think this could be one to consider.

Read important documents and apply

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

The details

Type
Fund
Sector
Technology
Target return
3x
Funds raised / sought
£5.0 million sought
Minimum investment
£10,000
Deadline
19 Feb for 2020/21 allotment
Last updated: 15 January 2021

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